We’ve become a nation of pay-as-you-go consumers

By Donald Boyd October 7, 2016

First it was the monthly credit card bills. Next I blame Orange and Vodafone for giving away seemingly ‘free phones’ which you essentially rented through your monthly bill. More recently, our Millennials have been transfixed by the ‘Pay-As-You-Go’ culture of Netflix, Spotify, Deezer, Apple Music (the list goes on). Back in the day we 70’s kids actually purchased music or bought a DVD or even, so seemingly archaic, went out and rented a VHS tape from our local video store. As a finance professional I’ve watched the definition of wealth transitioning from what you have saved in the bank, to what comes into the Bank account each month. I guess there is no other industry better at realising this switch than the motor trade.

We budget monthly and we buy everything monthly. For that reason, the actual cost of an item has become irrelevant. What is the cost of an album these days? What is the cost of a seven part box set? Who knows? All we know is that someone out there is making money off of our monthly payments. So why even bother with list prices of vehicles?

It was only last year I was in conversation with a salesman on the floor of a Jaguar Dealership who succinctly summed it up, saying that people don’t ‘buy cars’ any more, they ‘buy monthly payments’. This has been evidenced by the boom in PCP over the years, in that consumers are less bothered about the list price but rather what they are having to take out their net pay every month.

Where does this stop? We’re moving into more and more riskier areas, particularly with the advent of Personal Contract Hire. I do question whether the man in the street really understands the contractual nature of the transaction they are getting into? It also plays heavily on the residual value of the vehicles where it has been increasingly difficult to predict. In some instances, for a lower monthly payment, you can acquire a new vehicle versus a used vehicle.

Whether we like it or not the monthly payment culture is here to stay, so the trade has to keep getting more and more innovative in ways in which they can sell to consumers. Not doing so will end up with a monthly payment being run through a “checkingmonthlypayment.com” price comparison website and will this then be the death of the car showroom. This has been predicted in the past, but given the product is frankly too good today, the consumer increasingly doesn’t want to view vehicles in a showroom. The punter will rely on recommendations from friends and family.

So where do we go from here? I think it will be enhanced package deals, including insurance, servicing, road tax which the fleet market has excelled in over the years. With the advent of alternative fueled vehicles, it may be that the use of the charging sockets around the country and the installation of a personal charging socket at your home and office is inclusive. This would float the boat of many a millennial striving for that fixed financial certainty as they genuflect at the altar of Jobs, Wozniak and Musk. Elon Musk, now there’s a thought automotive industry…

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